The Skye Bank challenge: An update

I wrote “The Skye Bank challenge” on August 3, 2016 four weeks after the Central Bank of Nigeria (CBN) intervened in the management of the bank on July 4, 2016 replacing the chairman, managing director and non-executive directors. That article highlighted the scale of the challenge the CBN-appointed team would face in re-positioning Skye Bank given its deteriorating prudential ratios including a large non-performing loan portfolio and concerns that the institution had stretched its capital and liquidity with a very aggressive loan growth, poor quality risk assets and the strain on its finances due to the acquisition of Mainstreet Bank. The ensuing panic by customers, shareholders and institutional counter-parties that greeted the regulatory intervention also eroded bank’s deposit base as depositors flew to safety.

I however expressed the hope that given the integrity and professional pedigree of M. K Ahmad and Tokunbo Abiru, who were appointed Chairman and MD/CEO respectively by the CBN, and the expected support from the regulator, the institution had a fighting chance of surviving the challenging period it was inevitably plunged into (I must disclose that Abiru is a former colleague and my consulting firm, RTC Advisory Services has a financial relationship with the bank) and should be able to stabilize the bank. Happily since July 2016 and to date the institution has sustained its services and operations and its banking halls have continued to operate in a calm and orderly fashion. This is in spite of what looks like deliberate efforts by some persons on social media and especially Whatsapp who continue to peddle outdated stories that the Central Bank was moving against the bank. The central bank had to intervene at a point to rebut these rumours and offer assurance to customers and the general public.

Knowledgeable insiders I have spoken to claim that the new management met an institution with many of its biggest loans non-performing, complicated by the fact that most of these facilities were said to be insider-related. Some sources have also alleged that apart from insider lending, the management claims to have unearthed significant accounting infractions that may have been suppressed until recently. In terms of portfolio structure and mix, the bank reportedly relied on expensive wholesale and volatile public sector money to fund its operations and a large proportion of its risk assets were denominated in foreign currency.

One year later, it does seem that the new management has restored relative depositors’ confidence and significantly stemmed the outward flow of deposits from the bank. The management has settled a significant portion of the matured trade and counterparty obligations with third-parties and reached amicable deals on remaining transactions. A major pre-occupation of the management in the last one year has naturally centred around cleaning up the loan portfolio. The institution appears to have significantly improved the quality of loan security and collateral documentation and has recovered more than N57.5billion of overdue loans in the last year. The improved security position has also encouraged many debtors to resume payment and agree restructuring terms for outstanding obligations. In one notable case, the bank having perfected its legal mortgage was able to appoint a receiver/manager to take over the management of a major international hotel in Victoria-Island, Lagos.

Another area of focus of the new management has been cutting and optimizing the institution’s operating cost structure. Actions taken include rationalizing the branch network, amending supplier contracts and improving cash management which resulted in major cost savings for the bank. Cost improvement measures also included divestment from local and international subsidiaries, an ongoing process that should also yield significant cost savings and cash flow enhancements.

Given that the regulator and apex bank intervened in the management of the bank and appointed its board and management, CBN has provided strong support to the institution by way of financial accommodation to improve its liquidity. The regulator has also provided guarantees to depositors and deposit money banks for one year and recently renewed those guarantees for another year from July 2017. CBN has also provided various waivers, support and forbearances to the bank to support the valiant efforts of its board and management in ensuring the survival and success of the bank.

Having achieved relative stability, the key concern of the management one year later should be and indeed is around assuring the future of the institution. I gather the management has appointed a leading merchant bank as financial advisers for its proposed recapitalization programme and identified possible options for recapitalizing the bank which have been laid before the CBN. The management after a series of internal and external audits and forensic examinations has concluded the bank’s 2016 annual accounts and submitted same to the regulators. The CBN is said to be currently evaluating these options.

My sense is that beyond stabilization, the bank would still require support from government and the regulator in putting the bank in a recapitalization-ready mode. While management may have succeeded in restoring stability, structural solutions beyond the current internal capacity of the bank will be required to cure the bank’s significantly eroded capital base in order to make it possible for investors to acquire the bank and provide capital for future viability.

Opeyemi Agbaje